Pakistan has no choice but to ensure that negotiations with the IMF are successful. “If this does not happen, then Pakistan might not be saved from a financial default,” analyst Kamran Yousaf said in his latest vlog. Even if the IMF programme is approved, and a decision is made to disburse the next instalment to Pakistan, then “the country and its people will not be swallowing a bitter pill, but will have to ingest many poison pills,” he added.
Pakistan has been stifled by a polycrisis which has multiple economic dimensions along with political, institutional, security, social and other aspects. The external economic shocks are quite literally ‘fueled’ by oil prices and an ever-worsening balance of payments crisis, while the national economy is suffering from supply chain problems, lack of productivity, brain drain, and an archaic legal structure that favours the entrenched elites, instead of merit or healthy competition. “Inward investment into Pakistan also does not resemble that of any developing country,” Yousaf said, in a veiled reference to the country’s unattractiveness as a secure, stable and lucrative destination for global talent and finance.
For a long time, Pakistan has been delaying its external crisis – spending more than it makes – by borrowing money from its trusty allies. When that did not suffice, Pakistan had to go to the IMF for its needs, and had to agree to IMF conditions. However, every time Pakistan made promises to the IMF, it never fulfilled them. And now, neither the IMF nor Pakistan’s allies are willing to trust any promises made by whatever regime that governs Islamabad. “Pakistan made commitments to IMF but always backed out, with the result that today, the IMF is not willing to trust us,” Yousaf clarified.
In Kamran Yousaf’s assessment, the current government has no choice but to agree with all IMF conditions, and to fulfill them as well. One major fumble by the incumbent government was the replacement of Dr. Miftah Ismail, a competent but politically unpopular economic manager, with PML-N’s long-time finance minister Ishaq Dar, who was confident that he could steer Pakistan out of the economic mess without IMF help.
Yousaf said that Ishaq Dar now privately laments that he had “miscalculated” in his hopes that China and Saudi Arabia would bail out Pakistan before the IMF package came through. He added that this is yet another “wake up call” for Pakistan.
Kamran Yousaf listed the historical record of both the Kingdom of Saudi Arabia and the People’s Republic of China coming to Pakistan’s aid at different points in time during the past many decades. He also mentioned other friendly countries, such as Qatar, who had bailed Pakistan out.
There now seems to be a ‘broad understanding’ in the international community, especially among wealthy donor countries and international financial institutions, that nobody will help Pakistan without conditionalities that require reforms not just in policy promises but in terms of tangible implementation. Continuing to financially bail out Pakistan is now widely considered as ‘incentivising Pakistan to keep continuing its failed policies’, including coming back to ask for more monetary help. Pakistan must no longer expect to continue receiving help without ‘mending its ways’ and fixing the structural problems with its economy and with its regulatory management systems.
Even in private conversations, representatives of Pakistan’s all-weather allies say they are ready to help Pakistan. But none of these promises have materialised so far. Now Pakistan has no choice but to accept all of IMF’s conditions, because only after that happens will the financial inflows from friendly countries will start coming in.
It may be recalled that the Saudi finance minister said at the sidelines of the recent World Economic Forum in Davos that Saudi aid to other countries will now have conditions for reform which will be prepared in consultation with international financial institutions. The Saudi minister made these remarks while saying that if Saudi citizens were being taxed to generate these financial assistance monies, then the recipient countries should also have a responsible and effective taxation policy.
However, the federal government continues to enlarge the size of the cabinet, adding special assistants to the prime minister after every few days. This is an indication that, as always, the government might not be prepared to follow through with the reforms necessary to save Pakistan.
Even if the IMF programme is agreed, it will not spell the end of Pakistan’s economic woes. Kamran Yousaf rightly states that Pakistan must prepare for much tougher times ahead, and initiate the reforms that it has been putting off for decades.__Courtesy The Friday Times